I would like some basic pointers with regards to capital gains
on an inherited house.
In 1984, my grandmother changed the deeds of her home adding my
mother - with the intention of simplifying matters when she died - my
mother would automatically inherit it.
My grandmother continued to be the sole resident - paying all bills and
maintenance, until she died in 2004. Following her death, the property
was valued at 165,000 pounds by multiple estate agents, and was
immediately put on the market.
It has took 1.5 years to sell, during which the asking price was
slowly reduced until now where an offer has been accepted for
My mother owns her own home and has never lived at the property
Will the fact that my mother had her name added to the deeds count
against her - will capital gains be based on the value of the
property at the time my mother's name was added? Or could this
be treated as a lost of 15,000 - no GC applicable.
Was the Grandmother 'dependent' on your mother?. If so then full relief
may be available because your mother acquired her share before April
1988. I think it may be a point of contention though because your mother
didnt buy the property for her mother.
If the relief I describe above is denied then your mother's taxable gain
will be based on half the sale price less sale costs less half the value
at the time of the gift inflated by the RPI index from 1988 to April
1998, the gain is then reduced by taper relief thereafter to the date of
sale. Finally, deduct the CGT allowance (if it is still available to
you) currently £8800.
I assume this is based on the fact that the house was valued at 165k at the
time of death, but sold for only 150k - representing a loss of 15k.
This would assume though that the house belonged solely to the grandmother
until she died, and then passed to the mother.
On a related subject, does anyone know the position relating to CGT on a
property which you own but don't live in, if you *don't* own another
property? I'm thinking of cases where people are provided with accommodation
by their employer, but invest in property which they will move into some
years later when they retire.
If they elected for the house to be their principal residence )and wasnt
rented out) then its CGT free. But of they didnt then any gain will be
subject to CGT. If hey did elect and also rented out, then the CGT will
be pro-rata according to the relative periods, but with three extra
years added to the PPR bit and knocked off the rented bit.
I do. For GC read CG (as in CGT). Had she been deemed to have acquired
the whole house at a probate value of 165k, she would have sustained a
As it is, she only acquired half the house at half of 165k and would
hence sustain only half the 15k loss.
It remains to be seen what went into the forms as the equivalent of
probate value, though, since the 165k "valuation" was only a bunch of
estate agents' wishful thinking.
In this context the words "automatically inherit" are a bit of a
contradiction in terms. I think you mean they were made joint tenants,
such that they both owned the whole house together, and upon the death
of either of them, the survivor would then become sole owner (as opposed
to tenants in common, which would mean them both owning equal or unequal
shares which either one could in theory sell independently of the other).
With joint tenants, the survivor does not technically "inherit" the house
(or the "other half" of it), but is deemed to *already own* it. With
tenants in common, on the other hand, the deceased's share of the house
is part of the estate and will be inherited by the survivor only if the
will makes provision for this (or intestacy rules so provide in the
absence of a will).
For inheritance tax purpose, alas, this distinction does not apply, and
a passing of ownership by survivorship is taxed the same as a passing of
ownership by inheritance.
For the purposes of inheritance tax applicable to your grandmother's
estate, this would presumably be treated as a gift with reservation
and would have been ineffective in reducing her IHT bill. However,
unless the house put together with all her other assets exceeded the
IHT threshold there would perhaps not have been any IHT bill to reduce.
It might. There are basically two views that can be taken:
1) Half the house was gifted in 1984 and the other half passed by
survivorship in 2004. Because the gift was ineffective for IHT
purposes it ought also to be ineffective for CGT purposes, and mother
should be treated as having acquired full value at time of grandmother's
death. But I think (2) will prevail:
2) The taxman can have it both ways. Only half the house passed by
survivorship, the other half by gift. So now that mother is selling
it, half the sale proceeds will be treated as a capital gain on half
the 1984 value, while the other half will be treated as a £7,500 loss
on half the "inherited" value.
See above. Both, I think. Half and half.
You don't say how much the house was worth in 1984. Suppose it was
worth £20k. So we're looking at a £10k gift gaining £65k in value.
I estimate there will be indexation allowance of some £8k reducing
the taxable gain to £57k, then taper relief of 35% off giving a
taxable sum of £37k. Then deduct the £7.5k loss on the other half,
and her £8,800 CGT allowance this year, giving a net taxable amount
of almost £21k. Depending on your mother's other taxable income,
she should expect to pay at most 40% of this (if she's already a
higher-rate taxpayer), or at least 20% of it (unless her income
is less than £7,185, in which case it will be a bit less than 20%).
Still, £4k and a bit won't make much of a dent in £150k.
I don't think so. Mother acquired co-ownership of the whole house,
but as grandmother retained co-ownership, this counts, for value
purposes, as a transfer in 1984 of half the value of the whole house
by gift, and of the other half of the value at death.
As mother did not, during her (co-)ownership, equitably share in the use
and upkeep of the house, the gift was with reservation, and accordingly
the first half should be subject to IHT (using half the house's 1984
value), *and also* to CGT (based on 22 years' gain), while the 2nd half
of the value will be subject to IHT (based on the 2004 value) and to CGT
based on 2 years' gain (or loss as the case may be).
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